Canadian inflation dropped slightly by 0.1 percentage points to 1.8% in December, thanks in part to a temporary sales tax holiday on certain consumer goods, according to a report from Statistics Canada on Tuesday.
The reduction in inflation was attributed to the Goods and Services Tax (GST) break on products such as alcohol, food, clothing, shoes, toys, and more. Despite this, gasoline prices and travel expenses saw an increase. Rent and mortgage costs also rose, but at a slower rate than in previous months.
CIBC analyst Andrew Grantham pointed out that without the tax relief, inflation would have been closer to 2.3%.
Prime Minister Justin Trudeau’s government introduced the tax break as a way to ease the financial burden on Canadians dealing with rising living costs. However, the move faced criticism from Finance Minister Chrystia Freeland, who called it a “costly political gimmick” that the country could ill afford, especially with the looming threat of US tariffs on Canadian imports under President Donald Trump’s administration. In response, Freeland resigned, sparking a political crisis that eventually led to Trudeau’s announcement of his own departure.
Grantham noted in his analysis that there are many temporary and shifting factors affecting inflation at the moment, adding to the unpredictability of the situation.
Despite the fluctuations, economists generally expect the Bank of Canada to make another key interest rate cut at the end of January, in an effort to stabilize the economy.